An employer who intentionally withheld salary for three days was in repudiatory breach of contract, entitling the employee to resign without notice.
The facts
Dr Philip Comberg was CEO of VivoPower International PLC. Following disputes with the founder of VivoPower’s parent company, and unsuccessful negotiations about an agreed exit, Dr Comberg stepped down as CEO in September 2017 giving 12 months’ notice of termination of his employment. His salary was paid at the end of September 2017, but it was not paid at the end of October 2017. He sent emails about this on 1 and 2 November, indicating that he considered non-payment to be a serious breach of the terms of his employment, asking to be paid no later than 5pm on 3 November 2017 or he would have no choice but to treat the failure to pay his salary as deliberate.
When he was not paid on 3 November 2017, Dr Comberg terminated his employment, claiming that VivoPower was in repudiatory breach of contract. VivoPower alleged that the termination was ineffective, and it then purported to terminate his contract, alleging that Dr Comberg was in repudiatory breach, referring to his letter of 3 November terminating his employment and to alleged misconduct and/or mismanagement.
Dr Comberg claimed in the High Court that (amongst other things) he had been wrongfully dismissed.
The High Court upheld his claim. The judge referred to the relevant law, which highlights the “crucial importance of pay in any contract of employment”, and draws a distinction between situations where a delay in payment may potentially not go to the root of the contract – for example, if the delay is due to an accounting error or simple mistake – and where there is an intentional decision to withhold payment. Where there is an intentional decision to withhold payment, this will usually be repudiatory. On the evidence, the High Court considered that non- payment was intentional, and that three days’ delay was sufficient to be a repudiatory breach. The High Court commented that “this was a deliberate decision without cause… It has the hallmarks of an employer who was seeking to impose pressure on an employee…”.
The High Court also found that VivoPower had not proved that Dr Comberg had breached his contract of employment, let alone that any breaches entitled it to summarily terminate his contract.
What does this mean for employers?
Even a short delay in payment of salary can amount to a fundamental breach of contract. Employers who, for any reason, cannot pay salaries on time should make sure that they communicate with their employees about the reasons for this, where possible explaining when they expect to pay. While this may not avoid a breach of contract, it may lessen the likelihood of employees taking action in relation to the breach. Intentionally withholding salary will almost always be a repudiatory breach of contract. This will be particularly relevant where the employee’s contract includes restrictive covenants, which will fall away if the employer is in repudiatory breach.
Employers should also be aware that (while not impossible) it will be unusual for an employer to be entitled to terminate without notice for poor performance.
